Is Retail Ready to Run Again?

Lower consumption due to slowing growth doesn’t seem to have impacted this sector significantly, as MoneyShow’s Tom Aspray sees signs that it might be ready to resume its uptrend.

Aside from the flash crash that resulted from the false AP tweet, it was a very positive day for the markets. The advances led the declines by a 3-1 margin and the NYSE A/D line has made new highs. The NYSE new highs are still lagging and are well below the early 2013 highs.

This suggests that the Dow Industrials and S&P 500 can make new highs for the year while the small caps should still lag. There were many positive surprises in the tech sector even though the earnings from Apple, Inc. (AAPL) after the close were disappointing. Additional earnings will be watched closely as further gains by tech are needed to suggest it could regain its leadership role.

One group that made new highs this month that appears to have already completed its correction is the broadline retailers. Last week, it looked as though the department stores were going to correct further before their major uptrends resumed. The action this week indicates that their correction is now likely over. We took some profits on our holdings in this sector and there are now two well-known names we are looking to buy.

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Chart Analysis: The daily chart of the Spyder Trust (SPY) shows that it has rallied nicely after holding key support, line b, in the $153.40 area. Monday’s close was above the 20-day EMA.

Dillard’s, Inc. (DDS) is $3.8 billion department store that has also been very strong since the 2009 lows.

Since November, DDS has traded in a broad range with a high of $89.98 and a low in February of $75.33 on a small earnings miss. It reports earnings next on May 6.

The decline held the 50% retracement support from the July 2012 lows.

The relative performance is trying to bottom out at long-term support, line f.

A move in the RS line above its downtrend, line e, would be positive.

The daily OBV has broken its downtrend, line g, and just recently tested its rising WMA.

The strong close above the 20-EMA makes the next target at $81.41, which is the quarterly pivot level.

Further resistance is now at $82.83 and then at $84.34.

There is minor support at $79.50-80 with further in the $78 area.

What it Means: The impressive gains this week suggests that the strongest market sectors are going to make new highs. If the tech sector joins the party, then the current rally could last even longer.

The other possibility is that we will see a week or so rally to significant new highs before the sellers again come into the market.

How to Profit: Cancel the prior recommendation for Macy's Inc. (M) and go 50% long at $43.62 and 50% long at $43.16, with a stop at $41.88 (risk of approx. 3.5%).

For Dillard’s, Inc. (DDS), go 50% long at $79.68 and 50% long at $79.26, with a stop at $77.29 (risk of approx. 2.7%). Cancel if not filled by May 3.

Portfolio Update: Should be 50% long Wal-Mart Stores Inc. (WMT) from $68.03 as sold half at $78.55 or better. Use a stop at $72.66.

Should be long Target Corporation (TGT) from $62.17 and sold half at $68.88. Use a stop now at $66.67.

From the December 18 column, went 50% long the SPDR S&P Retail ETF (XRT) at $62.74 and 50% long at $62.46. Recommended taking some profits at $67.92 and then more at $71.22 on April 16. Use a stop at $68.58.